Facts for Consumers from the Federal Trade Commission

A New Credit Identity: A New Credit Repair Scam -- November 1992

If you have filed for bankruptcy, you may be the target of a new 
credit repair scheme, often called "file segregation." In this 
scheme, you are promised a chance to hide unfavorable credit 
information by establishing a new credit identity. That may sound 
perfect, especially if you fear that you will not be given any 
credit as long as bankruptcy appears on your credit record.  
The problem is, "file segregation" is illegal. If you use it, you 
could face fines or even prison.

This fact sheet alerts you to some aspects of this new type of 
credit repair scam, describes the false claims that fraudulent 
companies sometimes use to sell you the service, and says why 
participation is illegal. It also lists other FTC brochures that 
discuss your credit rights and responsibilities. 

The Pitch:  A New Credit Identity

If you have filed for bankruptcy, you may receive a letter from a 
credit repair company that warns you about your inability to get 
credit cards, personal loans, or any other types of credit for 
ten years. For a fee, the company promises to help you hide your 
bankruptcy and establish a new credit identity you can use when 
applying for credit.  

If you pay the fee and sign up for the service, you may be 
directed to apply for an Employer Identification Number (EIN) 
from the Internal Revenue Service (IRS). Typically, EINs_which 
resemble social security numbers_are used by businesses to report 
financial information to the IRS and the Social Security 
Administration.

After you receive your EIN, you are advised to use it in place of 
your social security number when you apply for credit. You also 
are advised to use a new mailing address and to include some 
credit references.  

The Catch:  False Claims

Listed here are reasons a credit repair service may give you for 
establishing a new credit identity. These false claims, along 
with the pitch for getting a new credit identity, should alert 
you to the possibility of fraud.  

Claim 1:  You will not be able to get credit for 10 years (the 
period of time bankruptcy information may stay on your credit 
record).

Each creditor has its own criteria for granting credit. While one 
may reject your application because of a bankruptcy, another may 
grant you credit shortly after you filed for bankruptcy. And, 
given a new reliable payment record, your chances of obtaining 
credit will probably increase as time passes. 

Claim 2:  The company or "file segregation" program is affiliated 
with the federal government.

The federal government does not support or work with companies 
offering such programs.

Claim 3:  The "file segregation" program is legal.

It is a federal crime to make any false statements on a loan or 
credit application, which the credit repair company may advise 
you to do.  It is a federal crime to misrepresent your social 
security number. It also is a federal crime to obtain an EIN from 
the IRS under false pretenses.  

Further, you could be charged with mail or wire fraud if you use 
the mail or the telephone to apply for credit and provide false 
information.  Also, file segregation would likely constitute 
civil fraud under many state laws.

If you receive a letter from a company making such claims, 
contact your state attorney general or consumer protection 
office. You also can file a complaint with the FTC. Write:  
Correspondence Branch, Federal Trade Commission, Washington, D.C. 
20580. While the FTC does not handle individual cases, it can act 
against companies when it sees a pattern of possible law 
violations developing.

Other FTC Brochures

For more information about credit reports, you can order these 
free FTC brochures:  Building a Better Credit Record, Credit 
Repair Scams, Fair Credit Reporting, Fix You Own Credit Problems 
and Save Money, Scoring for Credit, Solving Credit Problems, and 
Women and Credit Histories. Write:  Public Reference, Federal 
Trade Commission, Washington, D.C. 20580.


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